By Jorn Madslien
BBC News Online business reporter at the Shell AGM in London

Heads have long since rolled over Shell's exaggerated reserves scandal and a new management team is in place, yet its shareholders are still far from content.

Lord Oxburgh was both apologetic and defiant.

Having turned up in droves at the group's much delayed annual general meeting in London on Monday, they demanded answers and they wanted further change.

"I am quite sure you were in consultation with institutional shareholders, so why were private shareholders left out?" barked private investor John Kennedy who wanted to know why Shell had failed to write to small investors at the height of the scandal back in the winter.

"I had to rely on the press!" shouted Mr Kennedy.

"Is it not scandal, Sir?" snapped one heckling private investor, quoting the now infamous email in which former head of exploration and production, Walter van de Vijver, had told former chief executive Sir Philip Watts that he was "fed up of lying" about Shell's reserves.

"You are still covering up the scandal," the heckler cried to some applause, though for the most part the tone was considerably more polite despite a positively gladiatorial atmosphere built as investors filled the huge hall where the AGM was being held.

Reserves exists

There to face the music was the board of non-executive directors of the UK arm of Royal Dutch/Shell, The Shell Transport and Trading Company, looking uncomfortable but resigned to the fact that taking the flack is part of their job.

The board's chairman Lord Oxburgh, who took over in March this year following the ousting of Sir Philip, was overwhelmingly apologetic.

"We have not talked to you, the shareholders, sufficiently," Lord Oxburgh acknowledged. "Sometimes we do not live up to standards."

But he was also defiant. "There has been no cover-up," he insisted, adding that that the board could have done nothing different given that it was only told about the reserves issue in January because some senior directors had been "economical with the information that they had passed to the board".

Explanations, not excuses

Lord Oxburgh also tried to explain the background to the way Shell overstated its proven reserves in its books. From the discovery of oil to the delivery of oil "there are many intermediate stages", Lord Oxburgh said. At some point while going through these stages, the oil should be declared as "proven reserves" in accordance with rules laid down by the US markets regulator Securities and Exchanges Commission, he explained, suggesting that this was where Shell strayed.

The atmosphere was positively gladitorial once investors took their seats.

"Our procedures for interpreting [the SEC rules] were flawed," Lord Oxburgh said, though he said the oil would still be produced as planned and at the same cost.

The oil resources that Shell was forced to remove from its books due to regulatory requirements "are still there", he said, adding that the company expects to return about 85% of these reserves "to the proven category" this year.

Estimates of oil reserves is not, Lord Oxburgh said, "a clear-cut issue". "Honest people can reach different estimates," he said. As such, "there can be explanations, but there can be no excuses".

Club together

Having dealt with the issue of exaggerated reserves, Lord Oxburgh appeared keen to move the meeting forward to discussions about why on earth the ousted former chief executive Sir Philip had been paid £1m to go.

Shareholders want change

His question, "are we ready to move over to remuneration?" was raised, it was met with a loud cheer. Soon shareholders queued up to vent their frustration, the views ranging from one shareholder who insisted Sir Philip should have been fired without a penny in his pocket to another who insisted that if the board felt he deserved a reward they "should club together and pay for it".

Shell's well prepared panel hit back, not by backing Sir Philip but instead by insisting that paying him a large chunk of money had ensured a swift ending to the saga and enabled it to get on with rebuilding trust with investors. Besides, his remuneration was not as large as it seemed given that he had been forced to forego his bonus for 2003 when profits rose 27%, and given that his share options were, at least for the moment, worthless.

Reform needed

But dwelling on Sir Philip's remuneration package only made sense if seen in context, some investors insisted.

Shell's board insist they are on the right track.

"The whole issue of pay is becoming a litmus test about governance," insisted Alan MacDougall of Pensions & Investment Research Consultants (PIRC), a London-based share holder activist group. "If you cannot get it right with Sir Philip, how can we trust that you'll get it right in the future?"

Others insisted that Shell's problems had arisen due to cultural difficulties within the organisation. In the words of Axa Investment Managers managing director Jim Stride, there are "deepseated weaknesses in [Shell's] corporate governance and management culture". While shareholder Greg Massey insisted that "it seems that Shell pursues a policy of secrecy of its operations".

"We believe there is a real need for change in the company's structure," said one fund manager, and by change investors tend to mean a massive overhaul of the way Shell is organised.

The group's full name - Royal Dutch/Shell - reflects the fact that it is the amalgamation of one arm in the Netherlands, which holds 60% of the operating company, and another in the UK. The 170-year-old company has two separate boards, part of an "archaic" web of governance that reduces transparency and leads to poor corporate governance.

"You will surely unite the company so that we'll know who's responsible for what," called out one small shareholder, clearly reflecting the desire of many.

Shell's response was measured, as expected. "We shall come forward with a proposal [for reform] at the earliest possible date," said Lord Oxburgh, having earlier vowed to "change the way we work across the world".

But Lord Oxburgh also said it "would not be in anyone's interest to rush reform".

This summed it up for shareholder John Kennedy: "If such changes come about, it will come about through pressure, not because of a general desire to reform."